Politics must address reforms for savers and promote Germany’s attractiveness after the election
- Launch reform of private pension schemes
- Enable more infrastructure financing by funds
- Deregulation to strengthen competitiveness
- Reassess sustainability regulation
- Rigorous regulation of financial market data providers
The German Investment Funds Association BVI is calling on politicians to take swift decisions on key financial issues after the federal election on 23 February 2025. ’Germany has an immense backlog of reforms to the detriment of savers, infrastructure, and the competitiveness of the financial centre,‘ says Thomas Richter, CEO of BVI. Deregulation and reduction of bureaucracy are necessary at both national and EU level. Richter: ’Overregulation causes high costs. This money would be better invested in technology.’
Reform private pension schemes at last
Consumers urgently need a high-yield, flexible pension scheme. In the past legislative periods, several attempts to reform private old-age provision have failed. ’The next government should address the reform quickly. The product must be attractive if it is to become more widespread. Above all, this includes less bureaucracy in the form of applications to the authorities and more freedom in the pay-in and pay-out phase,‘ says Richter. The elimination of the statutory obligation to provide guarantees and lifelong annuities opens up higher return opportunities and more choice for savers. Richter: ’Germany would finally catch up with international role models such as the USA, Sweden, or France. State intervention in the private market is unknown there, as in other advanced Western economies.‘
Channelling private capital into German infrastructure
Private capital is needed for the renovation and expansion of infrastructure in Germany. Funds could make a significant contribution. So far, however, tax regulations have prevented German funds from investing in domestic infrastructure projects such as renewable energy plants on a large scale. This means that German capital flows to portfolio managers abroad, who then invest it in foreign projects instead of German ones. The draft for a second Financing for the Future Act (Zukunftsfinanzierungsgesetz), which was stopped by the break-up of the traffic light government, would have finally paved the way for funds to make long-term investments, especially in German infrastructure. This would have allowed funds to invest, for example, in open-space photovoltaic systems and in solar systems on logistics or storage halls without restrictions. Richter: ’The draft for the Financing for the Future Act II was good. The new government should take it up again.’
Deregulation and the necessary cutting of red tape
It is long overdue for Brussels to drive forward the EU’s competitiveness and reduce excessive bureaucracy. BVI has been calling for more principle-based rules for years. This is because the large number of detailed rules, which often bring no added value for investors and are sometimes even contradictory, cause disproportionately high costs. For example, there is no money for IT investments. This is one of the reasons why the European asset management industry is falling further and further behind the global competition. The inadequate impact assessment of new laws on companies makes the situation worse. The consequences only become apparent after implementation in practice. ’We can no longer afford experimental regulation at the expense of the industry,‘ emphasises Richter.
The EU also needs to be bold and deregulate. Two years ago, the President of the EU Commission, Ursula von der Leyen, announced a standardised competitiveness check for EU legislation. However, no action has followed since then. It is therefore good that the new EU Financial Markets Commissioner Maria Luís Albuquerque wants to critically assess regulatory projects. Richter: ‘She can start immediately with the EU Retail Investment Strategy, and not even let it become law. The proposal does not achieve any important political objectives, such as getting retail investors to the capital markets or improving investor protection. All that remains is bureaucracy for providers, customers, and supervisors. It is easier to prevent new bureaucracy than to reduce existing one.’
Streamline sustainability reporting
The EU Commission is planning the first steps towards cutting red tape in sustainability reporting. The excessive scope and increasing complexity of companies' ESG reporting obligations, which also extend to the entire supply chain, undermine the goal of disclosing material sustainability risks, opportunities and impacts, thereby facilitating investment decisions. The Commission's ‘Omnibus Initiative’, which is expected in a couple of weeks, is intended to simplify and streamline the maze of regulations. Richter: ‘This initiative is good. However, the EU Commission cannot stop at the company level, but also has to reduce the reporting requirements for asset managers at the same time.’ This is because they rely on ESG company data to fulfil their own obligations. Richter: ‘Sustainability regulation has overshot the mark by far. Half-hearted tinkering is not enough to turn the tide. We need a shift towards regulations that are practical for regulators, the industry, and investors and effectively support sustainable investing.’
Financial market data: BVI calls for ’EU Data Vendor Act‘
The financial industry's spending on market data has been increasing for years, in some cases massively. Fund companies are also legally required to use stock prices, benchmarks, ratings, and other data from third-party providers. This data is a prerequisite for services along the entire value chain in asset management, from research to trading, clearing, settlement, compliance, and risk management, as well as in sales or reporting. They are provided by stock exchanges, rating agencies, and companies with a dominant market position such as large index and data providers. These companies can unilaterally set the terms of the contract because customers, such as fund companies, cannot function without this data. Richter: ‘We are calling for an “EU Data Vendor Act” that regulates the business practices of these companies. Because if we do not do this, the already significant cost pressure in the fund industry will increase even further – also to the detriment of investors.’
Download Press release (PDF)